Direct from the desk of Dane Williams.
Answering the most frequently asked questions around Hive’s algorithmic stablecoin, HBD.
Did you know that there is an algorithmic stablecoin called Hive Backed Dollars (HBD), still paying 20% interest?
In the post UST world that we live in, your first reaction is no doubt that this is probably too good to be true so don’t want to even bother.
But if you dig a little deeper, you’ll quickly discover why HBD’s model is not only sustainable, but boasts censorship-resistant properties that no other coin can compete with.
It’s most definitely worth your time!
Let’s find answers to some of HBDs most frequently asked questions and discover why it’s hands down the best algorithmic stablecoin in 2022 and beyond.
What is HBD?
As mentioned in the introduction, Hive Backed Dollars (HBD) is, in our opinion, the best algorithmic stablecoin currently on the market.
Supported by the decentralised Hive network’s ability to convert 1 HBD into $1 USD worth of HIVE at any time, they provide a novel solution to the (at least soon to be) highly regulated stablecoin space.
There are more detailed constraints on HBD creation that are coded into the blockchain and designed to keep the Hive economy sustainable - Of which you can read about in more detail in the guide I’ve linked to in the paragraph above.
An example of HBD in action would be that 10 HBD can be instantly converted into $10 USD worth of HIVE using a mechanism within the blockchain.
So rather than being backed by physical USD in a bank somewhere else, it’s the Hive network’s conversion mechanism which ensures HBD remains pegged at $1 USD.
The most talked about feature of HBD is that when it is placed in the savings section of your Hive wallet, it earns a 20% APR.
An algorithmic stablecoin interest rate that is unrivalled in the industry.
Is HBD really decentralised and permissionless?
When we talk about a stablecoin like HBD being permissionless, all that matters is that the underlying network is decentralised to the point that it is unable to be taken over or manipulated by one or a couple of colluding bad actors.
Quite simply, you can’t trust an ‘owner’ of the coin or network to say their coin is censorship-resistant because when push comes to shove, they WILL cave to regulatory pressures.
As such, all that matters is technical censorship-resistance thanks to a truly decentralised, underlying network.
As an algorithmic stablecoin backed by the decentralised Hive network, the answer is yes - HBD is REALLY decentralised and permissionless.
Is the price of HBD stable at $1.00 USD?
By now, you’ve probably Googled ‘hbd price today’, clicked your favourite crypto data aggregator and been greeted with an extremely underwhelming price below $1.
Ignore it - It’s bullshit.
The price feed that these data aggregators (such as CoinGecko and the like) use are tied to prices on centralised exchanges.
And if you go down to the markets section of HBD on one of these sites, you will quickly discover that they are taking their prices from HBD’s only 2 CEX listings.
- Upbit - A Korean only KYC exchange.
- Bittrex - A non-US KYC exchange with all but zero volume.
CEXs are reluctant to list HBD for regulatory reasons, or simply unable to because their processes require a company name and address to be placed on the application.
Something that a truly decentralised algorithmic stablecoin like HBD, just can’t provide.
If you want to check the price of HBD, first check Hive’s internal market where it trades against HIVE at the price of $1.
Then double check against the highly arbed derivatives bHBD and pHBD for a clear USD price.
Finally you can monitor HBD’s algorithmic fundamentals here.
Still don’t believe me that the price of HBD is stable?
Then I encourage you to buy as much of it under $1 that you can get your hands on, because you can simply move it on chain and convert it to $1 worth of HIVE.
The reality is you won’t be able to, because the price is stable at $1.
Where does HBD’s 20% interest come from?
HBD’s 20% interest comes from the Hive blockchain’s inflation.
That being, freshly printed tokens.
This inflation used to pay interest on HBD in savings, is actually in addition to HIVE’s regular rate of new tokens being minted per block.
Keep reading! 👇
Is HBD’s 20% interest sustainable?
Yes, HBD’s 20% interest rate is sustainable.
While many consider inflation to be a dirty word, the reality is that the rate new tokens are created to pay interest on HBD savings is actually less than 0.5% on a yearly basis.
When you consider just how small our market cap is, this is an inflation rate that is more than sustainable.
Remember, for HBD to take its place at the table amongst the major stablecoins, it needs to increase its size 100x from here…
…and then some!
So I’d encourage you not to get caught up in interest payments being paid via inflation.
Furthermore, paying HBD interest via inflation in this manner can't increase inflation too much because for that to happen, Hive needs more HBD to be created.
More HBD created means that the price of HIVE should go up.
Then when that occurs, we would begin to see Hive’s inflation drop.
A phenomenon we saw play out in real time throughout 2021 when HIVE actually ended the year as a deflationary asset.
The bottom line is that the haircut rule and ultimately the amount of debt that the blockchain takes on is what regulates HBD.
As such, the APR paid out on top is actually insignificant to the sustainability of HBD.
Does HBD's 20% APR compound daily or monthly?
You are paid interest daily based on a 20% annual simple interest rate.
But you can only claim and reinvest your interest earnings monthly.
This means that if you do claim at the end of each month and compound your interest, then your actual APR will be higher than 20%.
What HIVE price will the haircut rule kick in?
For the haircut to kick in, the HBD market cap must rise above 30% of HIVE’s market cap.
You can check the live HIVE price that the haircut would kick in on @ausbitbank’s Hive Backed Dollars Monitor.
But at the time of writing that price is 6.9c:
The acceptable debt limit is dynamic depending on the amount of HBD in circulation.
If HBD in circulation drops through conversions or buying from the stabiliser, so will this price.
For example at the beginning of 2022 we had 14M HBD and a floor price of around 17 cents.
Now we are at 9.7M HBD and a floor price at sub-7 cents.
Can what happened to UST happen to HBD?
No, the death spiral that spelt the end of UST, CANNOT happen to HBD.
The two algorithmic stablecoins are actually designed completely differently and as such, the comparison is not a like for like.
The biggest difference between the two is that HBD uses a 3.5 day average price when doing conversions.
This makes arbing in this manner a little harder, but is much more secure.
The second major difference preventing what happened to UST happening to HBD is the “haircut” rule.
Remember, HBD remains stable by being redeemable for $1 worth of HIVE - Essentially hard coded ‘debt’ creation.
But to prevent the blockchain taking on an unsustainable level of debt, the blockchain has a level where it stops creating new HBD.
Once the haircut level has been hit, the amount of HBD generated is halted until the ratio falls back underneath.
You can view how close HBD is to the current haircut limit of 30% here.
How is the 20% HBD interest rate determined?
Hive’s elected witnesses signal their desired rate and HBD’s interest rate is set by the majority.
You can check the APR that each Hive witness is signalling via PeakD’s witness voting section:
Don’t like the APR that the elected witness have chosen?
You’re free to buy more HIVE, power it up and vote for witnesses more aligned with your personal views around what’s best for the chain!
Where can I spend HBD?
In my opinion, the key to HBD isn’t that you can spend them.
It’s that you have a permissionless, censorship-resistant alternative to storing your US dollars.
While you can spend them via some Hive-linked services like Hivelist and ListNerds, I don’t think being able to spend HBD is that big of a deal.
Honestly, I don’t even think of them as a cryptocurrency in their own right.
Instead, I see them as nothing more than US dollars.
Use HBD to safely store the value of USD with no counterparty risk such as banks or collateralized stablecoin options, then swap them to other coins/withdraw them back to fiat in order to spend.
Is there a market for HBD holders to buy and sell? If not, what projects are building one?
Check out what HiveList is doing in terms of allowing any eComm store to accept HBD.
”The Hivelist.store is the online retail and services marketplace where anyone can shop and hire services using cryptocurrencies - Including HBD!”
Super underrated project that deserves more recognition.
Where can I sell HBD and HIVE for fiat currencies?
Don’t have a KYC account on Bittrex or Upbit?
LeoFinance has set up the ability to bridge your HBD to a BSC based derivative called bHBD.
They have then built liquidity pools on the Cub Finance platform for bHBD:BUSD and bHIVE:bHBD.
Meaning that you can now permissionlessly swap between HBD and anything traded against BUSD via a DEX.
Once you have BUSD, you can easily swap it to your coin of choice, or simply send it as is to your non-KYC CEX of choice to withdraw into fiat.
Check out my how to buy HIVE without KYC tutorial for the process (and obviously just change bHIVE to bHBD)
What non-KYC exchanges allow HBD trading?
Yeah, none.
I really just think HBD is a regulatory and administrative landmine for centralised exchanges.
Nobody is going to want to touch a truly decentralised, permissionless alternative that is obviously going to face media scrutiny in the future (gotta take the good with the bad when it comes to censorship-resistance).
So honestly, we just need to forget about them and focus on building out functionality on the internal market to trade HBD against HIVE and then DEXs to permissionlessly swap to whatever else.
Why should I hold HBD instead of HIVE?
You should hold HBD instead of HIVE if you think that the price of HIVE won’t go up by 20% in the next 12 months.
So you can earn 20% on HBD in savings with zero price risk.
Or you can expose yourself to price risk (both up and down!) on HIVE, and only earn 10ish% via curation.
Obviously there are some other social advantages to powering up HIVE, but if you’re approaching it purely from an investment point of view, that’s how you’ve gotta think.
—
The plan with this Hive Backed Dollars (HBD) FAQ is to build an evergreen resource in easy to understand language that we’re able to point people to.
No doubt you’ve seen these same questions pop up over and over again and maybe not been equipped to answer them.
Well now you will be!
But wait, I need your help.
If you have any more questions that I’ve missed, then drop them in the comments.
And don’t be shy to answer any of these yourself - 100% LEO upvotes are on offer for anyone that helps me out here.
Best of probabilities to you.